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INSURANCE
I. INTRODUCTION
A. Principle behind insurance
Insurance is based upon the principle of aiding another from a loss caused by an
unfortunate event.
individuals to limit their liability and to impose whatever conditions they deem best
upon their obligations not inconsistent with public policy
Geagonia vs. CA
Held: It is a cardinal principle of law that forfeitures are not favored and that any
construction which would result in the forfeiture of the policy benefits for the person
claiming, will be avoided, if it is possible to construe the policy in a manner which
would permit recovery, as, for example, by finding a waiver for such forfeiture.
Provisions, conditions or exceptions in policies which tend to work a forfeiture of
insurance policies should be construed most strictly against those for whose
benefits they are inserted, and most favorably toward those against whom they are
intended to operate.
would not fire and pointed it to his temple in the belief that it is safe to do so.
CONTRACT OF INSURANCE
An agreement whereby one undertakes for a consideration to indemnify another
against loss, damages or liability arising from an unknown or contingent event
1. Insurable interest
In general, a person is deemed to have insurable interest in the subject
matter insured where he has a relation or connection with or concerning it
that he will derive pecuniary benefit or advantage from its preservation and
will suffer pecuniary loss or damage from its destruction, termination or injury
by the happening of the event insured against.
2. Risk of Loss or Damage / Designated Peril as Cause
The happening of the designated events, either unknown or contingent, past
or future, will subject such interest to some loss, whether in the form of injury,
damage, or liability
3. Assumption of Risk
The insurer assumes the risk to indemnify the insured in case of loss
3. Payment of Premium
4. Risk-Distributing Scheme
This assumption of risk is part of a general scheme to distribute the loss
among a large number of persons exposed to similar risks
7. A personal contract
Each party having in view the credit, character and conduct of another
8. A contract of Adhesion
Policy is presented to the insured already in its printed form
9. Of highest degree of good faith (uberrimae fides contract)
The contract of insurance is one of perfect good faith not for the insured
alone but equally so for the insurer. It requires the parties to the contract to
disclose conditions affecting the risk of which he is aware or material fact
which the applicant knows, and those which he ought to know.
c) Industrial Life – a form of life insurance under which the premiums are
payable either monthly or oftener, if the face amount of insurance provided in
any policy is not more than five hundred times that of the current statutory
minimum daily wage in the City of Manila, and if the words "industrial policy"
are printed upon the policy as part of the descriptive matter.
a) Marine
Ocean marine insurance – insurance against risk connected with
navigation, to which a ship, cargo, freightage, profits or other insurable
interest in movable property, may be exposed during a certain voyage or
a fixed period of time
Inland marine insurance – covers primarily the land or over the land
transportation perils of property shipped by railroads, motor trucks,
airplanes, and other means of transportation. It also covers risks of lake,
river, or other inland waterway transportation and other waterborne perils
outside of those risks that fall definitely within the ocean marine category
b) Fire – insurance against loss by fire, lightning, windstorm, tornado or
earthquake and other allied risks, when such risks are covered by extension
to fire insurance policies or under separate policies
V. INSURABLE INTEREST
A. Definition and Purpose
A person is said to have an insurable interest in the subject matter insured where
he has a relation or connection with, or concern in it that he will derive pecuniary
benefit or advantage from its preservation and will suffer pecuniary loss or
damage from its destruction, termination, or injury by the happening of the event
insured against.
Essential element of an insurance contract.
Not legally possible to waive requirement
Developed to meet two objections:
1) That insurance is a wagering contract
2) That insurance creates the temptation of bringing about the event
insured against in order to collect the policy
When it should exist: When the insurance takes effect; not thereafter
or when the loss occurs.
Amount:
o GENERAL RULE: There is no limit in the amount the insured can
insure his life.
o EXCEPTION: In a creditor-debtor relationship where the creditor
insures the life of his debtor, the limit of insurable interest is equal to the
amount of the debt.
If at the time of the death of the debtor the whole debt has already
been paid, the creditor can no longer recover on the policy because the
principle of indemnity applies.
C. Insurable Interest in Property Insurance
Every interest in property whether real or personal, or any relation
thereto, or liability in respect thereof, of such nature that the contemplated peril
might directly damnify the insured (Sec. 13), which may consist in:
1. an existing interest;
2. any inchoate interest founded on an existing interest; or
3. an expectancy coupled with an existing interest in that out of which the
expectancy arises. (Sec. 14)
When it should exist: When the insurance takes effect and when the loss occurs,
but need not exist in the meantime.
Amount: The measure of insurable interest in property is the extent to which the
insured might be damnified by loss or injury thereof.
Must exist only at the time the Must exist at the time the policy takes
policy takes effect and need not effect and when the loss occurs
exist at the time of loss
The beneficiary need not have an The beneficiary must have insurable
insurable interest over the life of interest over the thing insured.
the insured if the insured himself
secured the policy. However, if the
life insurance was obtained by the
beneficiary, the latter must have
insurable interest over the life of the
insured.
D. Special Cases
The lessor cannot be validly a beneficiary of a fire insurance policy taken by a lessee
over his merchandise, and the provision in the lease contract providing for such
automatic assignment is void for being contrary to law and public policy. (Cha vs.
Court of Appeals, 227 SCRA 690)
Subsequent acts of the mortgagor cannot Acts of the mortgagor affect the mortgagee.
affect the rights of the assignee Reason: Mortgagor does not cease to be a
party to the contract.
d. In case of loss, the mortgagee is entitled to the proceeds to the extent of his
credit.
e. Upon recovery by the mortgagee to the extent of his credit, the debt is
extinguished.
In case a mortgagee insures his own interest and a loss occurs, he is entitled to
the proceeds of the insurance but he is not allowed to retain his claim against
the mortgagor as the claim is discharged but it passes by subrogation to the
insurer to the extent of the money paid by
E. Several interests
DOUBLE INSURANCE
Double insurance exists where the same person is insured by several
insurers separately in respect in the same subject and interest.
Effects of double insurance:
1. The insured, unless the policy otherwise provides, may claim
payment from the insurers in such order as he may select, up to the
amount for which the insurers are severally liable under their respective
contracts;
2. Where the policy under which the insured claims is a valued policy,
the insured must give credit as against the valuation for any sum received
by him under any other policy without regard to the actual value of the
subject matter insured;
OVER INSURANCE
Over Insurance exists when amount insured is over the value of the
property insured
o The insured may claim payment from the insurers in such order as
he may select, up to the amount for which the insurers are severally
liable under their respective contracts.
o Valued policy – the insured must give credit as against the valuation
for any sum received by him under any other policy without regard to the
actual value of the subject matter insured.
o Unvalued policy – he must give credit, as against the full insurable
value, for any sum received by him under any policy
o Insured receives any sum in excess – he must hold such sum in trust
for the insurers, according to their right of contribution among
themselves.
o Each insurer is bound as between himself and the other insurers, to
contribute RATABLY to the loss in proportion to the amount for which he
is liable under the contract.
o Cannot get above value of property minus that of proceeds from
other policies
o Cannot be more than loss because that would be wagering
A. Definitions
1. Policy of insurance - the written instrument in which a contract of insurance is
set forth.
3. Cover Note (Ad Interim) - a concise and temporary written contract issued to
the insurer through its duly authorized agent embodying the principal terms of an
expected policy of insurance.
Purpose: It is intended to give temporary insurance protection coverage to
the applicant pending the acceptance or rejection of his application.
Duration: Not exceeding 60 days unless a longer period is approved by
Insurance Commissioner (Sec. 52).
In case of conflict between a rider and the printed stipulations in the policy, the
rider prevails, as being a more deliberate expression of the agreement of the
contracting parties. (C. Alvendia, The Law of
Insurance in the Philippines, 1968 ed.)
before processing the application, the applicant dies before the application is
processed, thus, the contract is not perfected.
Remedy: Insurer liable for damages (Tort Theory) in the amount of the
face value of the policy, w/c is given to the estate of the deceased
applicant. (not to beneficiary because contract not perfected. Also, no
contractual liability also because there is no contact)
C. Basic contents of a policy
1. Parties
2. Amount of insurance, except in open or running policies;
3. Amount of premium;
4. Property or the life insured;
5. Interest of the insured in the property if he is not the absolute owner;
6. Risk insured against; and
7. The period during which the insurance is to continue
D. Delivery of the Policy - the act of putting the insurance policy – the physical
document – into the possession of the insured.
Constructive delivery is sufficient.
WoN policy was delivered after its issuance depends not upon manual
possession by the insured but rather upon the intention of the parties as
manifested in their acts or agreements.
Effect of Delivery:
1) Where delivery is conditional – Non-performance of Condition precedent
prevents contract from taking effect
2) Where delivery is unconditional – Delivery corresponding terms of
application consummates the contract and policy delivered becomes final
contract bet the parties
3) Where premium still unpaid after unconditional delivery – Policy will
lapse if premium unpaid at time and manner specified in the policy, in the
absence of any clear agreement that insurer will extend credit.
Perez v CA
Facts: Perez, already previously insured with BF Lifeman Insurance Co. applied for
additional coverage. He paid premium and was issued a receipt by the agent of BF
Lifeman. However, he died before his application papers were transmitted to the
head office of BF Lifeman. Was the insurance policy was perfected?
Held: No. There was no acceptance of the offer. The perfection of the contract was
conditioned upon compliance with the provision in the application form w/c stated that
perfection only lies when the applicant pays and the premium and receives and
accepts the policy while still in good health. Thus, the assent of BF Life was not given
when it merely received the application form of Perez in its provincial office. Also,
delivery to Perez would be impossible as he is already dead. So long as an
application for insurance has not been accepted or rejected by the insurer, it is
merely an offer or proposal to make a contract. The contract to be binding from date
of application must have been a completed contract that leaves nothing to be done,
passed upon or determined, before it shall take effect.
Facts: Sindayen partially paid his agent the first premium for a life insurance policy.
Agent and Sindayen agreed that policy, when and if issued, should be delivered to
Sindayen’s aunt who will complete the payment of the first annual premium. Jan. 16,
1933 – agent received approved policy and delivered it to Sindayen’s aunt on Jan.
18. However, before the policy was given to Sindayen himself, he died on Jan. 19.
Should Insular Life assume the risk covered by Sindayen’s policy
Held: YES. Delivery to the insured in person is not necessary, and may be made by
mail or duly constituted agent (in this case, Sindayen’s aunt). Insurance company is
bound by the acts of its agent. In this case, the agent is not a mere automaton and is
vested w/ some discretion in deciding WON the condition as to the health of the
applicant has been complied with. Once he decides that it has and delivers the
policy, then, in the absence of fraud, the insurance company is estopped from
claiming the policy has no effect.
Held: NO. Under the Civil Code, consent is shown by the concurrence of offer and
acceptance. An acceptance shall not bind the person making the offer except from
the time it came to his knowledge.
E. Contents of policy
1. Parties
2. Amount of insurance, except in open or running policies;
3. Rate of premium;
4. Property or life insured;
5. Interest of the insured in the property if he is not the absolute owner;
6. Risk insured against; and
7. Duration of the insurance.
F. Form of policy
The policy is different from the contract itself. The policy is not essential to
the validity of the contract as long as all the essential elements for the existence of
contract are present.
The Insurance Code does not require a particular form for the validity of the
contract, but requires form for policy:
o Shall be in printed form but group insurance and group annuity
policies, however, may be typewritten and need not be in printed form
Warranty – inserted or attached to a policy to eliminate specific potential
increases of hazard during the policy term owing to: 1) actions of the insured
or 2) condition of the property.
Clause – an agreement between the insurer and the insured on certain
matters relating to the liability of the insurer in case of loss.
2. Valued Policy – one in which the parties expressly agree on the value of
the subject matter of the insurance.
A. Insurer
party who assumes or accepts the risk of loss and undertakes for a
consideration to indemnify the insured or to pay him a certain sum on the
happening of a specified contingency or event
For a person to be called an insurance agent, it is necessary that he should
perform the function for compensation. (Aisporna vs. CA, 113 SCRA 459)
B. Insured
The party in whose favor the contract is operative and who is indemnified
against, or is to receive a certain sum upon the happening of a specified
contingency or event. He is the person whose loss is the occasion for the
payment of the proceeds by the insurer
C. Beneficiaries
Refer to the persons who are designated in a contract of insurance as
the one who is to receive the benefits which become payable, according to
the terms of the contract, upon the death of the insured.
Chosen exclusively by insured who may designate anyone (irrespective
of lack of insurable interest) so long as s/he not disqualified by law.
Proceeds of life insurance policy become the exclusive property of the
beneficiary upon the death of the insured.
Cestui que vie
- Person on whose life the policy was taken.
- Must be a risk acceptable to the insurer
Art. 2012 (Civil Code) Any person who is forbidden from receiving any donation
under Article 739 cannot be named beneficiary of a life insurance policy by the
person who cannot make any donation to him, according to said article. (n)
2. Property
a) The beneficiary of property insurance must have an insurable interest in such
property, which must exist not only at the time the policy takes effect but also
when the loss occurs. (Sec. 13 and 18).
The insured does not even retain the power to destroy the contract
by refusing to pay the premiums for the beneficiary can protect his
interest by paying such premiums for he has an interest in the fulfillment
of the obligation.
Life Insurance is paid to whoever is named the beneficiary and may not
necessarily be the heir of the insured. Retirement benefits on the other hand, are
primarily intended for the benefit of the employee – to provide for his old age,
incapacity, etc. If the employee reaches the age retirement, he gets the benefits
even to the exclusion of the beneficiary named in the policy. The beneficiary of the
retirement insurance can only claim the proceeds of the retirement insurance if the
employee dies before retirement. IF there is no beneficiary designated in the
policy, benefits will accrue to the estate. (Vda. de Consuegra v GSIS)
If the premiums paid came from conjugal funds, the proceeds are considered
conjugal. If the beneficiary is other than the insured’s estate, the source of
premiums would not be relevant. (Del Val v. Del Val, 29
VIII. RISK
A. What may be insured against:
1. Future contingent event resulting in loss or damage – Ex. Possible future fire
2. Past unknown event resulting in loss or damage – Ex. Fact of past sinking of
a vessel unknown to the parties
3. Contingent liability – Ex. Reinsurance
Exceptions:
1. Accidental killing
2. Self-defense
3. Insanity of the beneficiary at the time he killed the insured
2. Pro rata:
a. When the insurance is for a definite period and the insured
surrenders his policy before the termination thereof, except:
opolicy not made for a definite period of time
oshort period rate is agreed upon
olife insurance policy
b. When there is over-insurance (Sec. 82);
3. Not recoverable:
a. When the risk has already attached and the risk is entire and
indivisible.
b. In life insurance.
c. When the contract is rescindable or rendered void ab initio by the fraud
of the insured.
d. When the contract is illegal and the parties are in pari delicto.
PREMIUM ASSESSMENT
Tibay v CA
Held: Since acceptance of partial payment is not mentioned among the exceptions
provided in Sec 77 and 78 of the Insurance Code, no policy of insurance can ever
pretend to be efficacious until premium has been fully paid. The policy contained a
condition w/c said that “The policy including any renewal thereof is not in force until
the premium has been fully paid x x x” Clearly, the Policy provides for payment of
premium in full.
Makati Tuscany v CA
Held: The policies are valid even if the premiums paid in installments because the
records clearly show that the two parties intended the policies to be binding and
effective notwithstanding the staggered payment of the premiums. The acceptance of
the installment payments over the period of 3 years speak loudly of intention of
insurer to honor the policies it issued to Makati Tuscany.
NOTE: Difference with Tibay case: In Tibay, there was an express stipulation w/c
said that payment shall be made in full. In this case, the policy was binding because
of the prior agreement to allow installment payments, hence full payment under
Sec.77 deemed waived.
d) The insurer may grant credit extension for the payment of the premium
credit term for the payment of the premiums despite its full awareness of Sec.
77. Estoppel bars it from taking refuge under the action, since Masagana relied
on good faith on such a practice
2) Life
Contract not binding until first periodical premium payment. After first
payment, insured under no legal obligation to pay subsequent premium.
X. RESCISSION
A. Grounds for rescission
1. Concealment
2. Misrepresentation
3. Breach of material warranty
4. Breach of a condition subsequent
a. Requisites:
a. A party knows a fact which he neglects to communicate or disclose
to the other.
d. The other party has not the means of ascertaining the fact
concealed.
e. Material
Exceptions
a. Incontestability clause
b. Matters under Sec.110 (marine insurance)
Where matters of opinion or judgment are called for, answers made in good faith
and without intent to deceive will not avoid the policy even though they are untrue.
Reason: The insurer cannot rely on those statements. He must make further
inquiry. (Philamcare Health
Characteristics:
a. It is not a part of the contract but merely a collateral inducement to it.
Kinds
a. affirmative – affirmation of a fact when the contract begins; and
Effect: the injured party is entitled to rescind from the time when the
representation becomes false.
Test of Materiality: Same as that in concealment.
Where the insured merely signed the application form and made the agent of the
insurer fill the same for him, it was held that by doing so, the insured made the
agent of the insurer his own agent and he was responsible for his acts for that
purpose. (Insular Life Assurance Co.
Kinds
a. express – an agreement expressed in a policy whereby the insured
stipulates that certain facts relating to the risk are or shall be true, or
certain acts relating to the same subject have been or shall be done.
b. Immaterial
General rule: It will not avoid the policy.
Exception: When the policy expressly provides or declares that a
violation thereof will avoid it. (Sec. 75)
WARRANTY REPRESENTATION
Effect of breach:
a. Condition precedent – prevents the accrual of cause of action
b. Condition subsequent – avoids the policy or entitles the insurer to
rescind
F. Exceptions – Provisions that may specify excepted perils. It makes more definite
the coverage indicated by the general description of the risk by excluding certain
specified risk that otherwise would be included under the general language
describing the risks assumed.
Effect: Limit the coverage of the contract.
Ng v Asian Crusaders
Held: Concealment exists where the insured had knowledge of a fact material to the
risk, and honesty, good faith and fair dealing requires that he should communicate it
to the insurer, but he intentionally withhold the same. The insured informed the
medical examiner that the tumor he was operated on was associated with ulcer of the
stomach. In the absence of evidence that the insured had sufficient medical
knowledge as to enable him to distinguish between “peptic ulcer” and tumor” his
statement was an expression made in good faith of his belief as to the nature of his
ailment and operation. If the operation and ailment of the insured had such an
important bearing on the assumption of risk by the insurer, it should have made
further inquiries on the matter or required copies of the hospital records before
approving the application. As provided by Section 32 where the right to material
information may be waived “…by neglect to make inquiries as to such facts where
they are distinctly implied in other facts of which information is communicated”
Canilang v CA
Held: The information the insured failed to disclose was material to the ability of the
insurer to estimate the probable risk he presented as a subject of life insurance, had
he disclosed it, it may be reasonably assumed that the insurer would have made
further inquiries and would have probably refused to issue a non-medical insurance
policy or at the very least required a higher premium for the same coverage.
Materiality is the probable and reasonable influence of the facts upon the party
to whom the communication should have been made, in assessing the risk
involved, in making or omitting to make further inquires and in accepting the
application for insurance.
Yu v CA
Held: The insured is guilty of concealment as the fact which he failed to disclose to
the insurance company deprived the respondent of the opportunity to make the
necessary inquiry as to the nature of his past illness so that it may form its estimate
relative to the approval of his application. “A neglect to communicate that which a
party knows and ought to communicate, is called concealment” and “Whether
intentional or unintentional, the concealment entitles the insurer to rescind the
contract of insurance”. Insurer is relieved from liability.
Pacific Banking v CA
Held: By reason of the unrevealed co-insurances, the insured had been guilty of a
false declaration; a clear misrepresentation and a vital one because where the
insured had been asked to reveal but did not, that was deception. Had the insurer
known that there were many co-insurers, it could have hesitated or plainly desisted
from entering into such contract. Hence, the insured was guilty of clear fraud. The
insurance policy against fire expressly required that notice should be given by the
insured of other insurance upon the same property, the total absence of such notices
nullifies the policy.
2. Life – such right must be availed of during the first two years from
the date of issue of policy or its last reinstatement; prior to “incontestability.”
(Sec. 48)
Grounds:
1. Non-payment of premium;
2. Conviction of a crime out of acts increasing the hazard insured against;
Requirements:
1. Prior notice of cancellation to the insured;
2. Notice must be in writing, mailed or delivered to the named insured at the
address shown in the policy;
3. Notice must state which of the grounds set forth in Sec. 64 is relied upon
and upon request of the insured, the insurer must furnish facts on which
the cancellation is based;
4. Grounds should have existed after the effectivity date of the policy.
D. Incontestability clause
Clause in life insurance policy that stipulates that the policy shall be incontestable
after a stated period.
Requisites:
1. Life insurance policy
2. Payable on the death of the insured
3. It has been in force during the lifetime of the insured for a period of at
least two years from the date of its issue or of its last reinstatement
5. That the fraud is of a particularly vicious type, as where the policy was taken
out in furtherance of a scheme to murder the insured, or where the insured
substitutes another person for the medical examination, or where the
beneficiary feloniously kills the insured.
6. That the beneficiary failed to furnish proof of death or to comply with any
conditions imposed by the policy after the loss has happened.
7. That the action was not brought within the time specified.
XI. LOSS
A. Definition
Injury or damage sustained by the insured in consequence of the happening of
one or more of the accidents or misfortune against which the insurer, in
consideration of the premium, has undertaken to indemnify the insured.
(Bonifacio Bros. Inc. vs. Mora, 20 SCRA 261)
Loss for which insurer is liable Loss for which insurer is not liable
Proximate Cause – An event that sets all other events in motion without any
intervening or independent case, without which the injury or loss would not have
occurred.
Notice of Loss
In fire insurance In other types of insurance
Required Not required
Failure to give notice will defeat Failure to give notice will not
the claim exonerate the insurer, unless there is
right of the insured to recover. a
stipulation in the policy requiring the
insured to do so.
Purposes:
1. to make the person who caused the loss responsible for it
2. to prevent the insured from receiving double recovery from the wrongdoer
and the insurer
- it is a method of implementing the principle of indemnity
3. to prevent tortfeasors from being free from liability and is thus founded on
public policy.
Rules:
1. Applicable only to property insurance.
Reason: the value of human life is regarded as unlimited and therefore no
recovery from a third party can be deemed adequate to compensate the
insured’s beneficiary
2. The insurer can only recover from the third person what the insured could
have recovered.
3. Where the insurer pays the insured for a loss or risk not covered by the
policy. (Pan Malayan Insurance Company v. CA, 184 SCRA 54)
4. in life insurance
5. for recovery of loss in excess of insurance coverage
Should the insured, after receiving payment from the insurer, release
by his own act the wrongdoer or third party responsible for the loss or
damage from liability, the insurer loses his rights against the wrongdoer since
the insurer can only be subrogated to only such rights as the insured may
have. (Manila Mahogany Mfg. Corp. v.
CA, 154 SRA 668)
If the amount paid by the insurance company does not fully cover the
injury or loss, it is the aggrieved party, the insured, who is entitled to recover
the deficiency from the person responsible for the loss or injury.
2. However the parties may validly agree on a shorter period provided it is not
less than one year from the time the cause of action accrues.
3. The cause of action accrues from the rejection of the claim of the insured and
not from the time of loss.
It shall commence from the denial of the claim, not from the resolution of the motion
for reconsideration, otherwise it can be used by the insured as a scheme or device to
waste time until the evidence which may be used against him is destroyed. (Sun
Insurance Office, Ltd. v. CA, 195 SCRA)
4. In CMVLI, the written notice of claim must be filed within 6 months from the date
of the accident otherwise the claim is deemed waived. The suit for damages
either with the proper court or with the Insurance Commissioner should be filed
within 1 year from the date of the denial of the claim by the insurer, otherwise
claimant’s right of action shall prescribe. (Sec. 384)
A. Coverage:
1. Vessels, goods, freight, cargo, merchandise, profits, money, valuable papers,
bottomry and respondentia, and interest in respect to all
s or perils of navigation;
2. Persons or property in connection with marine insurance;
3. Precious stones, jewels, jewelry and precious metals whether in the course
of transportation or otherwise; and
4. Bridges, tunnels, piers, docks and other aids to navigation and
transportation. (Sec. 99)
Cargo can be the subject of marine insurance, and once it is entered into, the
implied warranty of seaworthiness immediately attaches to hoever is insuring
the cargo, whether he be the shipowner or not. (Roque v. IAC, 139 SCRA
596)
B. Marine Protection and Indemnity Insurance 1.
Classes of inland marine insurance
a. Property in transit – provides protection to property frequently exposed to
loss while it is transportation form one location to another.
b. Bailee liability -insurance for those who have temporary custody of the
goods.
c. Fixed transportation property – they are so insured because they are
held to be an essential part of the transportation system such as bridges,
tunnels, etc.
d. Floater – provides insurance to follow the insured property wherever it
may be located, subject always to the territorial limits of the contract.
C. Insurable Interest 1.
Shipowner
a. Over the vessel to the extent of its value, except that if chartered, the
insurance is only up to the amount not recoverable from the charterer.
(Sec. 100).
b. He also has an insurable interest on expected freightage. (Sec. 103).
2. Cargo owner
Over the cargo and expected profits
3. Charterer
Over the amount he is liable to the shipowner, if the ship is lost or
damaged during the voyage
D. Loans on bottomry and respondentia
Repayment of the loan is subject to the condition that the vessel or goods,
respectively, given as a security, shall arrive safely at the port of destination.
1. Owner/Debtor
Difference between the value of vessel or goods and the amount of loan.
2. Creditor/lender
Amount of the loan
Only perils of the sea may be insured against unless perils of the ship is
covered by an all-risk policy.
Special marine insurance contracts and clauses
All Risks Policy – insurance against all causes of conceivable loss or
damage, except:
1) as otherwise excluded in the policy; or
2) due to fraud or intentional misconduct on the part of the insured.
The insured has the initial burden of proving that the cargo was in good condition
when the policy attached and that the cargo was damaged when unloaded from
the vessel; thereafter, the burden then shifts to the insurer to show the exception
to the coverage. (Filipinas Merchants
Insurance vs. Court of Appeals, 179 SCRA 638)
Barratry Clause
A clause which provides that there can be no recovery on the policy in case
of any willful misconduct on the part of the master or crew in pursuance of
some unlawful or fraudulent purpose without consent of owners, and to the
prejudice of the owner’s interest. (Roque vs.
IAC, 139 SCRA 596)
Inchamaree Clause
A clause which makes the insurer liable for loss or damage to the hull or
machinery arising from:
1. Negligence of the captain, engineers, etc.
2. Explosions, breakage of shafts; and
3. Latent defect of machinery or hull.
The concealment of any fact in relation Concealment of any material fact will
to any of the matters stated in Sec. vitiate the entire contract, whether or
110 does not vitiate the entire contract not the loss results for the risk
but merely exonerates the insurer from concealed.
a risk resulting from the fact concealed
Implied warranties
1. Seaworthiness of the ship at the inception of the insurance;
2. Against improper deviation
3. Against illegal venture;
4. Warranty of neutrality: the ship will carry the requisite documents of
nationality or neutrality of the ship or cargo where such nationality or
neutrality is expressly warranted
5. Presence of insurable interest.
Seaworthiness
A relative term depending upon the nature of the ship, voyage, service and
goods, denoting in general a ship’s fitness to perform the service and to
encounter the ordinary perils of the voyage, contemplated by the parties to the
policy (Sec. 114).
General rule: The warranty of seaworthiness is complied with if the ship be
seaworthy at the time of the commencement of the risk. Prior or subsequent
unseaworthiness is not a breach of the warranty nor is it material that the
vessel arrives in safety at the end of her voyage.
Exceptions:
1. In the case of a time policy, the ship must be seaworthy at the
commencement of every voyage she may undertake
2. In the case of cargo policy, each vessel upon which the cargo is shipped
or transshipped, must be seaworthy at the commencement of each
particular voyage
3. In the case of a voyage policy contemplating a voyage in different
stages, the ship must be seaworthy at the commencement of each
portion
Deviation
A departure from the course of the voyage insured, or an unreasonable delay in
pursuing the voyage or thecommencement of an entirely different voyage.
Instances:
1. Departure of vessel from the course of the sailing fixed by
mercantile usage
2. Departure of vessel from the most natural, direct and
advantageous route if not fixed by mercantile usage
3. Unreasonable delay in pursuing voyage
4. Commencement of an entirely different voyage (Secs. 121-123)
Kinds:
1. Proper
a. When caused by circumstances outside the control of the ship
captain or ship owner;
b. When necessary to comply with a warranty or to avoid a peril;
Loss
1. Total:
a. Actual
i. Total destruction;
ii. Irretrievable loss by sinking;
iii. Damage rendering the thing valueless; or
b. Constructive
i. Actual loss of more than ¾ of the value of the object;
ii. Damage reducing value by more than ¾ of the value of the vessel and of
cargo; and
iii. Expense of transshipment exceed ¾ of value of cargo.
Average
Any extraordinary or accidental expense incurred during the voyage for the
preservation of the vessel, cargo, or both, and all damages to the vessel and
cargo from the time it is loaded and the voyage commenced until it ends and the
cargo unloaded.
Exceptions:
1. After the separation of interests liable to contribution
2. When the insured has neglected or waived his right to contribution
A clause agreed upon in a policy of marine insurance in which it is stated that the
insurer shall not be liable for a particular average, such insurer shall be free
therefrom, but he shall continue to be liable for his proportion of all general
average losses assessed upon the thing insured.
Abandonment
The act of the insured by which, after a constructive total loss, he declared the
relinquishment to the insurer of his interest in the thing insured.
Effects:
1. It is equivalent to a transfer by the insured of his interest to the insurer with
all the chances of recovery and indemnity
2. Acts done in good faith by those who were agents of the insured in respect to
the thing insured, subsequent to the loss, are at the risk of the insurer and for
his benefit.
Co-insurance
A marine insurer is liable upon a partial loss, only for such proportion of the
amount insured by him as the loss bears to the value of the whole interest of
the insured in the property insured.
When the property is insured for less than its value, the insured is considered
a co-insurer of the difference between the amount of insurance and the value
of the property.
Requisites:
1. The loss is partial;
2. The amount of insurance is less than the value of the property
insured.
Rules:
1. Co-insurance applies only to marine insurance
2. Logically, there cannot be co-insurance in life insurance.
3. Co-insurance applies in fire insurance when expressly provided for by
the parties.
CO-INSURANCE REINSURANCE
A percentage in the value of the Situation where the insurer
insured property which the insured procures a 3rd party called the
himself assumes to act as insurer to reinsurer to insure him against
the extent of the deficiency in the liability by reason of an original
insurance of the insured property. In insurance. Basically, reinsurance is
case of loss or damage, the insurer an insurance against liability which
will be liable only for such proportion the original insurer may incur in
of the loss or damage as the amount favor of the original insured.
of the insurance bears to the
designated percentage of the full
value of the property insured.
U. Abandonment - the act of the insured by which, after a constructive total loss,
he declares the relinquishment to the insurer of his interest in the thing insured.
4. If the thing insured, being cargo or freightage, and the voyage can’t be
performed, nor another ship procured by the master, within a reasonable
time and with reasonable diligence, to fowrwar4d the cargo, without
incurring the like expense or risk mentioned in the preceding sub-
paragraph. But freightage cannot in any case be abandoned unless the
ship is also abandoned.
Requirements:
o There must be actual relinquishment by the person insured of his interest
in the thing insured (138)
o There must be constructive total loss (139). Any particular portion of the
thing insured separately valued by the policy may be separately
abandoned as it is deemed separately insured
o It must be total and absolute (140)
o It must be within a reasonable time after the receipt of reliable information
of the loss (141)
o It must be factual (142)
o It must be made by giving notice thereof to the insurer which may be
done orally or in writing (143)
o Notice must be explicit and must specify the particular cause of the
abandonment (144)
Notice of Abandonment:
o May be done ORALLY but written notice must be submitted within 7
days from such oral notice
o Must be explicit
o Specifies particular cause of abandonment, although it need state
only enough to show that there is probable cause therefor
A contract by which the insurer for a consideration agrees to indemnify the insured
against loss of, or
damage to, property by hostile fire, including loss by lightning, windstorm, tornado or
earthquake and other allied risks, when such risks are covered by extension to fire
insurance policies or under separate policies.
Prerequisites to recovery:
1. Notice of loss – must be immediately given, unless delay is waived expressly or
impliedly by the insurer
2. Proof of loss – according to best evidence obtainable. Delay may also be waived
expressly or impliedly by the insurer
One that escapes from the place where One that burns in a place where it was
it was intended to burn and ought to intended to burn and ought to be
be.
Insurer is liable Insurer is not liable
Measure of Indemnity
1. Open policy: only the expense necessary to replace the thing lost or injured in
the condition it was at the time of the injury
2. Valued policy: the parties are bound by the valuation, in the absence of fraud or
mistake
1. The use or condition of the thing is specifically limited or stipulated in the policy;
Fall-of-building clause
A clause in a fire insurance policy that if the building or any part thereof falls, except
as a result of fire, all
insurance by the policy shall immediately cease.
Insurance covering loss or liability arising from accident or mishap, excluding those
falling under other types of insurance such as fire or marine.
Classifications:
1. Insurance against specified perils which may affect the person and/or property
of the insured. (accident or health insurance)
2. Insurance against specified perils which may give rise to liability on the part of
the insured for claims for injuries to or damage to property of others. (third party
liability insurance)
Insurable interest is based on the interest of the insured in the safety of persons, and
their property, who may maintain an action against him in case of their injury or
destruction, respectively.
In a third party liability (TPL) insurance contract, the insurer assumes the
obligation by paying the injured third party to whom the insured is liable. Prior
payment by the insured to the third person is not necessary in order that the
obligation may arise. The moment the insured becomes liable to third persons,
the insured acquires an interest in the insurance contract which may be garnished
like any other credit. (Perla Comapnia de Seguro, Inc vs. Ramolete, 205 SCRA
487)
In burglary, robbery and theft insurance, the opportunity to defraud the insurer –
the moral hazard – is so great that insurer have found it necessary to fill up the
policies with many restrictions designed to reduce the hazard. Persons frequently
excluded are those in the insured’s service and employment. The purpose of the
exception is to guard against liability should theft be committed by one having
2. Indemnity for actual loss or reimbursement after actual payment by the insured –
A third party has no cause of action against the insurer (Bonifacio Bros. v. Mora,
20 SCRA 261).
The insurer is not solidarily liable with the insured. The insurer’s liability is based
on contract; that of the insured is based on torts. Furthermore, the insurer’s liability
is limited by the amount of the insurance coverage
(Pan Malayan Insurance Corporation v. CA, 184 SCRA 54).
If the injuries suffered by the insured clearly resulted from the intentional act of the
third person, the insurer is relieve from liability as stipulated. (Biagtan v. the Insular
Life Assurance Co. Ltd., 44 SCRA 58, 1972)
No action clause
A requirement in a policy of liability insurance which provides that suit and final
judgment be first obtained
against the insured; that only thereafter can the person injured recover on the policy.
(Guingon vs. Del Monte, 20 SCRA 1043)
A species of compulsory insurance that provides for protection coverage that will
answer for legal liability for losses and damages for bodily injuries or property
damage that may be sustained by another arising from the use and operation of
motor vehicle by its owner.
Method of coverage
1. Insurance policy
2. Surety bond
3. Cash deposit
Third Party – Any person other than the passenger, excluding a member of the
household or a member of the family within the second degree of consanguinity or
affinity, of a motor vehicle owner or land transportation operator, or his employee in
respect of death or bodily injury arising out of and in the course of employment. (Sec.
373[c])
“No-Fault” Clause
A clause that allows the victim (injured person or heirs of the deceased) to an option
to file a claim for death or injury without the necessity of proving fault or negligence of
any kind.
Purpose:
To guarantee compensation or indemnity to injured persons in motor vehicle
accidents.
Rules:
1. Total indemnity -maximum of P5,000
2. Proofs of loss
a. Police report of accident;
b. Death certificate and evidence sufficient to establish proper payee;
The claimant is not free to choose from which insurer he will claim the “no fault
indemnity” as the law makes it mandatory that the claim shall lie against the
insurer of the vehicle in which the occupant is riding, mounting or dismounting
from. That said vehicle might not be the one that caused the accident is of no
moment since the law itself provides that the party paying may recover against
the owner of the vehicle responsible for the accident. (Perla Compania de
Seguros, Inc. v.
Ancheta, 169 SCRA 144)
SPECIAL CLAUSES
A. Authorized Driver Clause
clause which aims to indemnify the insured owner against loss or damage to the
car but limits the use of the insured vehicle to the insured himself or any person
who drives on his order or with his permission (Villacorta v. Insurance
Commissioner)
B. Theft Clause
A clause which includes theft as among the risks insured against.
Where the car is unlawfully and wrongfully taken without the owner’s consent or
knowledge, such taking constitutes theft, and thus, it is the “theft clause” and not
the “authorized driver clause that should apply
C. Cooperation Clause
A clause which provides in essence that the insured shall give all such
information and assistance as the insurer may require, usually requiring
attendance at trials or hearings.
XVIII. SURETYSHIP